With the recent emphasis on sustainability and climate change, it would be easy to think that ethical investment is a relatively modern phenomenon. In fact, its roots can be traced back to 1758, when the Society of Friends (the Quakers) banned members from investing in the slave trade.
The first ethical fund in this country was launched in 1984 by Friends Provident – a company that also had its roots in the Quaker movement.
But what is ‘ethical investing?’ What does the term really mean? Perhaps the simplest definition is to say that ethical investment seeks to maximise both the individual investor’s financial returns and the overall social good.
Other companies quickly followed Friends Provident into the market and several ‘ethical’ funds appeared. In the early years, the funds mostly applied what was known as ‘negative screening’ where they wouldn’t invest in certain industries. Typically these were tobacco, alcohol, gambling, pornography and arms manufacture.
Today the industry has moved on. There are a much greater number of funds and the emphasis has switched to more positive screening of companies. Funds are now classed as being ‘light green’ or ‘dark green’ and they have been joined by ‘socially responsible’ investment funds. As you might expect, a ‘dark green’ fund uses stricter ethical criteria when selecting stocks – but a socially responsible fund might well invest in a company that ethical funds would reject (for example, animal testing) if the end result was a social benefit (say, a vaccine to save lives.)
There is also a developing trend towards funds which specialise in one particular area of concern – climate change is a good example – and most analysts expect the number of such funds to increase in the future.
This proliferation of funds – and their different criteria – can make things difficult for the investor. It’s therefore important to have a relationship with an experienced and knowledgeable investment adviser if you’re thinking of investing in ethical funds. Your ethics are a very personal matter, and a good adviser will be able to help you choose a fund that matches your ethical criteria. The adviser will also keep in regular contact with the fund managers to make sure that the ethical guidelines of the fund don’t change, and that it continues to reflect your values and concerns.
The good news for investors is that ethical funds have produced consistent returns over the years, in many cases outperforming more mainstream funds – so investing in the funds can make sense both ethically and financially. If you would like any more details of ethical investments, or information on individual ethical funds, then please don’t hesitate to contact Matthew Walne on 0116 2355 733.